VANCOUVER — Tahoe Resources (TSX: THO; NYSE: TAHO) is a bit of a trail-blazer when it comes to community relations and Corporate Social Responsibility (CSR) around its Escobal underground silver mine in the municipality of San Rafael Las Flores in the Santa Rosa department of southeastern Guatemala.
Guatemala is not the most attractive investment destination for the mining industry. According to the Fraser Institute's Survey of Mining Companies 2012/2013 — wherein mining and exploration senior managers are asked to identify the effects of public policies on mining investment — the country ranked 89th out of 96 jurisdictions around the world.
It hasn't always been smooth sailing, but Tahoe has fast-track Escobal into production over the past four years and is scheduled to become Guatemala's largest taxpayer when the project is fully operational. Currently mining contributes around 1.89% to Guatemala's gross domestic product (GDP), with Escobal projected to tack on another 2%. The project is expected to contribute annually more than US$50 million in tax revenues to the country.
Tahoe acquired the project for US$505 million in stock and cash from Goldcorp (TSX: G; NYSE: GG) in mid-2010. Tahoe structured its management team around ex-Goldcorp employees, most notably former Glamis Gold CEO Kevin McArthur and exploration manager Brian Brodsky.
“We were off to the races. While I didn't have any experience specifically in Guatemala, I did have development experience in the Third World, and the management team had all worked in the country at the Marlin mine," comments vice-president and general counsel Edie Hofmeister during a phone interview. "We have definitely benefited from that experience. When I first went down, there was just a sleepy little community with no bank and no real shops or amenities. Building the project over the past three years has really transformed San Rafael and outlying areas in a positive way.”
She recounts that Brodsky and his team had made inroads with local communities during their time at Escobal, and established a social responsibility team in the region. Tahoe inherited a variety of stakeholder mapping and studies, and hired much of Goldcorp's community staff.
It wasn’t long after Tahoe started at Escobal that the project began attracting attention from domestic and international non-governmental organizations (NGOs), including acute opposition from Guatemalan environmental group El Centro de Acción Legal-Ambiental y Social de Guatemala (CALAS). The two sides have clashed numerous times over the past three years, with Tahoe encountering protests at its mine site, and heightened local and global media coverage.
“A major way that international NGOs come into play — and often they aren't even aware of it — is in providing funding to local NGOs,” Hofmeister explains.
“I'm sure the language used on the applications sounds great, but if you look at actions on the ground they don't translate,” she continues. “I think these international NGOs would be very troubled by where this money is going. I was also in Canada recently stressing to [Members of Parliament] that they need to really look at where this money is going.”
But Tahoe has endured its difficult social moments at Escobal via a campaign of consistent and transparent engagement with the communities that are directly affected by the project. The mine employs roughly 800 people, with 95% of the workforce composed of Guatemalans from areas around San Rafael. Escobal’s total payroll in 2013 exceeded US$17 million.
Tahoe's in-country CSR manager, Guillermo Monroy, was hired in July 2012. Monroy was the first executive director of CentraRSE, a leading CSR organization in Guatemala, and has worked with the central government to establish a national dialogue on sustainable development and poverty reduction.
“I'd say we have a ‘pro-investment government,’" Monroy says by phone from San Rafel. "We understand that Guatemala is a country with a lot of problems. It's not only social programs in this case because the government needs more income and people need more jobs. They've identified mining as a strong source for that investment. We've had some success in the city centres, but challenges remain on how to get that capital infused into more rural areas.”
According to the World Bank's Poverty Assessment in Guatemala, official estimates indicate that poverty rose to 54% in 2011. The situation is particularly difficult in rural municipalities, which account for 44% of the country's population. There, almost eight out of 10 people are poor, according to the outcomes of the World Bank's 2011 Rural Poverty Map.
Tahoe is committed to putting money back into the San Rafael region. The project has already created around 2,000 direct and indirect jobs, and the company has invested US$2 million in 2013 in non-mining efforts such as road building, school enhancements, vocational education, and agricultural programs.
Escobal reached full production early this year, and on Feb. 4, Tahoe announced its first US$1.6 million payment to the government of Guatemala and the San Rafael municipality. The company is legally obligated to pay a 1% net smelter royalty return (NSR) at Escobal, but has opted to bump that up to 5%, with half of the proceeds going to municipal governments.
“Most of the communities close to the mine have seen the benefit that comes from this type of investment,” Monroy continues. “More than 100 new companies have been created within San Rafael due to the project. Some of them directly provide services to the mine, while many are serving needs the communities have developed since the incomes have increased. We expect that growth will continue, and that's driven such change over such a few years.”
Escobal has prompted the creation of San Rafael's two banks, and Tahoe has started investment and savings vehicles for its employees in order to promote sustained wealth creation. Monroy explains that employment in many rural areas involves temporary labour, with local people taking jobs at sugar plantations and other agricultural operations during harvest season.
"Part of what we believe is development includes not just giving these communities more money and economic resources, but also becoming an agent of change and helping them drive that development,” Monroy says. “Poverty is not only lack of income, but it's also lack of education and imbedded cultural habits. Most people would just work until they accumulated enough money for whatever they needed. Even educating on that basic element of full-time work and how to save is something that needs to be developed.”
Hofmeister adds that Tahoe must team up with municipal governments to develop budgets and urban plans needed to accommodate larger and wealthier populations. Tahoe has worked with San Rafael's mayor to determine the best use of the funds, and the company helped to bring running water to 70 homes in a regional cocode, which is a small village with its own council and leadership.
Tahoe's CSR spending directly supports roughly 27 communities around San Rafael, while another 300 communities benefit indirectly. Around 40% of the company's social investment in 2013 was aimed at schools, roadways, and water. Tahoe also focused on education, with 15% of its funds going towards scholarships and student support.
“I've always been very motivated by the idea of developing Guatemala, and working in the development sector you understand the potential benefits an investment like this can provide,” Monroy says. “If we are able to institute a sustainable mining process, it not only improves the sustainability of the companies but actually creates development for the communities surrounding it. It can be a great opportunity for poverty reduction in our country.”
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